Professional Documents
Culture Documents
UNIT-I
Section-A
1. Discuss the term job costing and process costing systems with examples
The cost object is a unit or multiple units of a distinct product or service called a job.
Each job generally uses different amounts of resources.
Process costing systems assign costs to masses of identical or similar units and
compute unit costs on an average basis.
The costing system of many companies combines many elements of both job
costing and process costing.
3. Explain the methods of cost volume profit analysis?
Every decision deals with selecting the cost of action, the chosen action is uncertain and
it only are known in future.
Obtain information
Break-even point
BEP is that quantity of output sold at which total revenues equal total costs. The methods
of BEP are,
Equation method
Operating income that a company aims to earn per unit of a product or service sold.
5. Explain the role of Regression Analysis in cost estimation.
The least squares technique determines the regression line by minimizing the sum
of the squared vertical differences from the data points.
The vertical difference called residual term, measures the distance between actual
cost and estimated cost for each observation.
6. What are the different methods that can be used to estimate a cost function?
It estimates cost function by analyzing the relationship between inputs and outputs in
physical terms.
Conference method
It estimates cost functions on the basis of analysis and opinions about costs and their
drivers gathered from various departments of a company.
It uses a formal mathematical method to fit cost functions to past data observations.
7. Discuss the merits and limitations of linear programming
These include the fact that usually all of the variables that need to be taken into
account in order to solve a problem cannot be quantified in a linear manner.
Finally, limiting the range of the problem also limits the possible solutions that
are given in the problem.
Section-B
Learning curve
Learning curve is a function that measures how labor-hours per unit decline as
units of production increase because workers are learning and becoming better at
their jobs.
Managers use learning curves to predict how labor-hours, or labor costs, will
increase as more units are produced.
An experience is a function that measures that decline in cost per unit in various
business functions of the value chain marketing, distribution and so on-as the
amount of these activities increases.
In the Cumulative average time learning model, cumulative average time per unit
declines by a constant percentage each time the cumulative quantity of units produced
doubles.
Ex: consider Rayburn Company, a radar systems manufacturer. Rayburn has an 80%
learning curve. The 80% means that when the quantity of units produced is doubled from
X to 2X, cumulative average time per unit for 2X units is 80% of cumulative average
time per unit for X units. Average time per unit has dropped by 20 %( 100%-80%).
Incremental Unit Time learning model
In the Incremental Unit Time Learning model, incremental time needed to produce the
last unit declines by a constant percentage each time the cumulative quantity of units
produced doubles.
Ex: consider Rayburn Company, a radar systems manufacturer. Rayburn has an 80%
learning curve. The 80% here means that when the quantity of units produced is doubled
from X to 2X, the time needed to produce the last unit when 2X total units are produced
is 80% of time needed to produce the last unit when X total units are produced.
Linear programming
Selection of the product mix to make the best use of machines, man-hours with a
view to maximize profits.
Selecting the advertising mix that will maximize the benefit subject to the total
advertising budget.
Determine the advertising mix that will maximize the benefit subject to the total
advertising budget.
Regression Analysis
The least squares technique determines the regression line by minimizing the sum
of the squared vertical differences from the data points.
The vertical difference called residual term, measures the distance between actual
cost and estimated cost for each observation.
The smaller the residual terms, the better the fit between actual costs observations
and estimated costs. Goodness of fit indicates the strength of the relationship
between cost driver and costs.
Accurate costs estimation helps managers predict future costs and evaluate the
success of cost reduction initiatives.
1. Simple regression
Simple regression analysis estimates the relationship between the dependent variable and
one independent variable.
2. Multiple regression
Multiple regression analysis estimate the relationship between the dependent variable and
two or more independent variable.
4. Explain the methods, potential problems and assumptions of cost volume profit
analysis?
Every decision deals with selecting the cost of action, the chosen action is uncertain and
it only are known in future.
Obtain information
1. Break-even point
BEP is that quantity of output sold at which total revenues equal total costs. The methods
of BEP are,
Equation method
Operating income that a company aims to earn per unit of a product or service sold
Assumptions of CVP
Changes in the level of revenues and costs arise only because of changes in the
number of product units sold. The number of product units sold is the only
revenue driver and the only cost driver.
Total costs can be separated into two components-a fixed component that does not
vary with units sold and a variable component that changes with respect to units
sold.
When represented graphically, the behaviors of total revenues and costs are linear
in relation to units sold within a relevant range.
Selling price, variable cost per unit and total fixed costs are known as constant
There are similarities with both methods as well as differences, which include costing
flow, manufacturing overhead and length of cost time analysis involved.
Costing Flow
Job order costing and process costing accounting methods are similar in that they
both observe three cost categories: direct material, direct labor and direct
manufacturing overhead.
Manufacturing Overhead
But process costing does not have this concern, a key difference between the two,
as process costing incurs the exact same manufacturing overhead with every
production run made through its assembly-line process.
The similarity between job order and process costing methods when analyzing all
this data is that each method requires analysis for each of the three parts:
inventory/raw materials cost, manufacturing costs and total units produced
divided by total cost.
Orders for products that are mass produced---single product lines, no specification
exists to slow down continuous flows of a product (concrete)---require less
complicated analysis.
Process costing can be defined as costing method which ascertains the cost of a product
at the stage of manufacturing. In simple words under process costing the product of one
process becomes the input of next process. Here is the list of the features of process
costing
Costs are computed periodically and also average cost can be easily computed
under this method of costing.
Under this cost data is available process as well as departments thus enabling a
better control over costs by the management.
There is always some work in progress under proves costing both at the beginning
and at the end of the accounting period because it is a continuous process.
7. What are the advantages and disadvantages of job order costing system
Section-A
In life cycle budgeting, managers estimate the revenues and business function
costs of the value chain attributable to each product from its initial R&D to its
final customer service and support.
Budget life cycle costs can provide useful information for strategically evaluating
pricing decisions.
The development period for R&D and design is long and costly.
Many costs are locked in R&D and design stages-even if R&D and design costs
themselves are small.
Market based pricing starts with a target price. A target price is the estimated
price for a product or service that potential customers will pay.
Competition from low cost producers has meant that prices cannot be increased.
Products are on the market for shorter period of time, leaving less time and
opportunity to recover from pricing mistakes, loss of market share, and loss of
profitability.
Customers have become more knowledgeable and demand quality products at
reasonable prices.
A cost driver is a variable, such as the level of activity or volume, which casually
affects the costs over a given span of time. That is there is a cause and effect
relationship between a change in the level of activity or volume and a change in
the level of total costs.
The cost driver of a variable cost is the level of activity or volume whose change
causes proportionate changes in the variable cost
Costs that are fixed in the short run have no cost driver in the short run but may
have a cost driver in the long run.
Costing system that identifies the cost of each activity such as testing, design, or
setup is called activity-based costing systems.
4. Write a note on
a) Value chain
b) strategic positioning
Value chain
Managers track the costs incurred in each value chain category. Their goal is to
reduce costs in each category and to improve efficiency.
Strategic positioning
5. When the life cycle costing and the life cycle budgeting is used in an organization?
The life cycle costing and life cycle budgeting techniques are particularly important
when,
A high percentage of total life cycle costs are incurred before production begins
and revenues are earned over several years.
A high fraction of the life cycle costs are locked in at the R&D and design stages.
3. Derive a target cost per unit by subtracting target operating income per unit from
the target price
Target cost per unit is the estimated long run cost per unit of a product or
service that enables the company to achieve its target operating income per unit of
the product.
Target operating income per unit is the operating income that a company
aims to earn per unit of a product or service sold.
Section-B
Cost driver
Cost drivers are used for cost allocation. It represent the force that drives the costs
to be incurred
Some companies use direct labor hours as the labor intensive production cost
centers and machine hours in their equipment intensive ones.
The alternative cost drivers that are used to allocate costs either to cost centers or
products can be grouped into the following principal categories.
Payroll related
Headcount related
Material related
Space related
Transaction related
Product related
Customer related
Business related
2. Describe the methodology of life cycle costing
The following fundamental concepts are common to all application of life cycle costing
concept,
Cost estimation
Estimation of inflation
Risk assessment
Sensitivity
Optimum bias
Should be designed to allow close control and monitoring different levels of data
within various categories
Cost estimation
Known factors: Procurement cost, unit production cost, cost of service provided etc
Cost estimating relationships: derived from historical data, care should be taken with this
data in rapidly changing industries.
Discounting
It is a technique used to compare costs and benefits that occur in different time periods
Inflation
Risk assessment
Cost estimate are made up of the base estimate and risk allowance .the cost involved with
the risk
Sensitivity
The sensitivity of cost estimates to factors such as changes in volumes, usage etc need t
be considered
Optimum bias
Being over optimistic about the parameters of the key project such as work duration.
Sales margin price variance=Actual quantity sold (actual sales price per
unit-standard sales per unit)
=Actual profit-standard profit
Target costing of a product or job is sum total of the variable cost targets fixed for
each element of cost (material, labor, power, consumables etc.) required to be incurred
for producing that product or job estimated on zero-base principles, plus the fixed cost
targeted on the same principles, so that the total cost plus the estimated margin of profit is
not more than the price the product is capable of fetching in the market.
Zero base principle is the variable cost incurred for producing zero units of the
product and from that position what is the incremental variable cost for each unit plus the
fixed targeted cost (Rent, Rates and taxes, advertisement, communication etc.) required
setting up the facility to produce an estimated number of units.
Advantages
1. We have a cost goal to achieve within the selling price, on realization of which there
can be no loss
2. The costs are worked to be contained within the market price which makes the product
competitive.
3. The financial feasibility workings are more credible.
Disadvantages
1. In the anxiety to contain costs within target, essential costs may be omitted or
compromised leading to loss.
2. The working accuracy of the target cost is very difficult.
3. The cost incurred may be different leading to under or over costing, unless there is a
mechanism to collect actual costs and compare them with targets.
5. Explain competitive advantage and its sources
Competitive advantage comes from many places beyond simply the product and
service and below I have outlined 14 possibilities for advantage. They are supported by
considerable data, research and experience; the data sources are included in a
bibliography below for your reference. Sources of competitive advantage lie all along the
value chain based on Michael Porters seminal work, Competitive Advantage and
famously depicted below.
Section-A
Activity-based costing approaches costs from the perspective that products do not
cause costs; they require activities, and the activities themselves are the causes of
all costs incurred.
Shifting the focus from products to activities highlights the existence of non-
value-add, or NVA, activity.
If activity is occurring that does not contribute efficiently to the production of the
finished good or service, it can be targeted for reduction or elimination, thereby
reducing costs.
Disadvantages
This analysis suffers from the following drawbacks:
This technique can be successfully employed only, if there is proper
standardization of materials in the store.
The analysis is based on monetary value of the items in use. Other important
factors one ignored.
In spite of the above mentioned limitations, the ABC analysis is very popular
method of inventory control. It is an effective instrument in reducing the cost of
materials in the store house.
Another disadvantage of solely using the conventional costing system is that it can
lead to bad management decisions because it excludes certain non manufacturing
costs.
Most organizations have some form of a Hidden Factory and being able to see
these hidden factories in an organization requires learning to see what waste is
and understanding that waste in any operation service or manufacturing can
be a substantial drain on the bottom line, top line, on employee morale,
shareholders and, most importantly, the customer.
Section-B
Users of the traditional costing method make the assumption that the volume
metric is the underlying driver of manufacturing overhead cost.
Cons
Activity-Based Costing
d) The allocation bases used in activity-based costing differ from those used in
traditional costing.
Cons:
Allocation of Costs
The biggest difference between ABC and traditional costing is the way the methods
assign overhead costs to objects. Under traditional costing, overhead costs are assigned to
products using a plant-wide, predetermined overhead rate. This rate, which is usually
calculated at the beginning of the year, is determined by making estimates of total
overhead costs and total activity. Under ABC, costs are assigned to activity pools and
separate rates are calculated for each activity. As a consequence, companies that use
ABC are able to determine the costs of setting up a machine or designing a product much
more accurately, as they are able to assign only the overhead for these activities, where
under traditional costing they would be assigning a portion of total factory overhead.
Management Reporting
ABC costing systems are able to produce management reports that are suitable for
internal decisions. However, as not all costs are assigned to products, these reports are
not appropriate for external reporting. Because ABC systems require many decisions in
the implementation process, care must be taken that the activities, pools and costs
identified are appropriate for the company. Otherwise, information that management
receives from the accounting system could do more harm than good.
Troxel and Weber discuss the 3 phases of ABC development, a future phase, and provide
some company examples for each of the various phases.
Systems were used for normal financial purposes, not strategic purposes.
The ABC approach was identified and differences from the traditional cost
accounting methods were recognized.
Some concern that full implementation of ABC would conflict with GAAP.
Recognition that ABC provides strategic insights and should be used as a decision
making tool.
Cooper and Kaplan helped lead the way through their research and publications.
Both commonalities and disparities will be recognized between cost drivers and
critical performance factors.
Value-added: This step in the process adds form, function, and value to the end
product and for the customer.
Non-Value-Added: This step does not add form, function, or assist in the finished
goods manufacturing of the product.
Non-Value-Added-But-Necessary: This step does not add value, but is a
necessary step in the final value-added product.
(2) & (3) naturally create waste, of which there are 7 types:
Step1:
The cost object is used to calculate the total costs of quality of the machines.
Step2:
Direct cost includes employee such as inspectors and workers in repair areas who are
dedicated to a product line.
Step3:
Select the activities and cost allocation bases to use for allocating indirect costs of quality
to the product
The activities that result in prevention, appraisal, and internal and external failure costs
and it indicate in parentheses the business functions of the value chain in which these cost
occur.
Step4:
Identify the indirect cost of quality associated with each cost allocation base
These are the total costs (variable and fixed) incurred for each of the costs-of-quality
activities, such as inspections, in all operations.
Step5:
For each activity, total costs are divided by total quantity of the cost allocation base to
compute rate per unit of each cost allocation base.
Step 6:
Step 7:
Compute the total costs of quality by adding all indirect costs of quality assigned to the
product
Unit-IV
Section-A
The "cost of quality" isn't the price of creating a quality product or service. It's the cost of
NOT creating a quality product or service.
Every time work is redone, the cost of quality increases. Obvious examples include:
Prevention Costs
The costs of all activities specifically designed to prevent poor quality in products or
services.
Appraisal Costs
The costs associated with measuring, evaluating or auditing products or services to assure
conformance to quality standards and performance requirements.
Failure Costs
Failure costs occurring prior to delivery or shipment of the product, or the furnishing of a
service, to the customer.
Scrap
Rework
Re-inspection
Re-testing
Material review
Downgrading
Failure costs occurring after delivery or shipment of the product and during or after
furnishing of a service to the customer.
Customer returns
Warranty claims
Product recalls
The sum of the above costs. This represents the difference between the actual cost of a
product or service and what the reduced cost would be if there were no possibility of
substandard service, failure of products or defects in their manufacture.
Internal failure costs are costs that are incurred as a result of identifying defective
products before they are shipped to customers. The labor, material, and (usually)
overhead that created the defective product. The areas / nomenclature are numerous and
include; scrap spoilage, defectives, etc.
The cost to correct the defective material or errors in service products which are found
prior to sending to the customer. Some examples of internal costs of quality are:
Quality can be attained only when both of them are controlled satisfactorily.
Quality is designed into a product as much as it is built in during its production or
service processes.
Quality of conformance
Quality of conformance is the level of the quality of product actually produced and
delivered through the production or service process of the organization as per the
specifications or design. When the quality of a product entirely conforms to the
specification (design), the quality of conformance is deemed excellent.
Quality of design
Quality of design is the quality which the producer or supplier is intending to offer to the
customer. When the producer is making the quality of design of the product, he should
take into consideration the customers requirements in order to satisfy them with fitness
for use of the product.
If the quality of design does not reflect the customer's requirements, the product which
the producer offers him would not probably satisfy the customer, even if it does
sufficiently conform to the design. Quality of design is usually indicated by completeness
and correctness of specifications, drawings, catalogues, etc. and is measured with fitness
for use.
Failure costs occurring prior to delivery or shipment of the product, or the furnishing of a
service, to the customer.
Examples are the costs of:
Scrap
Rework
Re-inspection
Re-testing
Material review
Downgrading
Failure costs occurring after delivery or shipment of the product and during or after
furnishing of a service to the customer.
Customer returns
Warranty claims
Product recalls
Section-B
Quality-definition
In manufacturing, a measure of excellence or a state of
being free from defects, deficiencies and significant variations. It is brought about by
strict and consistent commitment to certain standards that achieve uniformity of
a product in order to satisfy specific customer or user requirements. ISO 8402-
1986 standard defines quality as "the totality of features and characteristics of a product
or service that bears its ability to satisfy stated or implied needs." If
an automobile company finds a defect in one of their cars and makes a product recall,
customer reliability and therefore production will decrease because trust will be lost in
the car's quality.
Dimensions of Quality
Dimension 1: Performance
Dimension 2: Features
While this dimension may seem obvious, performance specifications rarely define the
features required in a product. Thus, its important that suppliers designing product or
services from performance specifications are familiar with its intended uses, and maintain
close relationships with the end-users.
Dimension 3: Reliability
Dimension 4: Conformance
Durability is closely related to warranty. Requirements for product durability are often
included within procurement contracts and specifications.
For instance, fighter aircraft procured to operate from aircraft carriers include design
criteria intended to improve their durability in the demanding naval environment.
Dimension 6: Serviceability
As end users become more focused on Total Cost of Ownership than simple procurement
costs, serviceability (as well as reliability) is becoming an increasingly important
dimension of quality and criteria for product selection.
Dimension 7: Aesthetics
The way a product looks is important to end-users. The aesthetic properties of a product
contribute to a companys or brands identity. Faults or defects in a product that diminish
its aesthetic properties, even those that do not reduce or alter other dimensions of quality,
are often causing for rejection.
Dimension 8: Perception
Perception is reality. The product or service may possess adequate or even superior
dimensions of quality, but still fall victim to negative customer or public perceptions.
As an example, a high quality product may get the reputation for being low quality based
on poor service by installation or field technicians. If the product is not installed or
maintained properly, and fails as a result, the failure is often associated with the products
quality rather than the quality of the service it receives.
2. Explain the Cost of Quality Analysis
Cost of Quality is a measurement used for assessing the waste or loss from a defined
process. These costs are significant and can be significantly reduced or avoided. Cost of
quality measurement can track changes over time for a particular process, or be used as a
benchmark for comparison of two or more different processes. Cost of Quality is usually
measured in monetary terms, requiring all losses and waste to be converted to their
liquidated cost equivalent.
For example, staff hours lost or spent are converted to their dollar equivalent by
multiplying the hourly rate for the staff by the hours spent. Cost of quality measurements
can be used to identify the optimum for a process, that is, the best possible outcome from
all operating modes, combinations and permutations of the current process.
Internal failure costs are associated with internal losses before the product
or service is supplied to the client, such as equipment breakdowns, scrap
and productivity losses.
External failure costs occur outside of the process being analyzed. These
costs are usually discovered by or affect third parties such as clients.
Some external costs may have originated from within, or may have been
caused by, created by or made worse by the process being analyzed.
Examples are customer or client complaints, lost customer/client goodwill
and warranty repair costs.
Preventive costs are associated with the prevention of future losses due to
poor quality, such as unplanned problems, lost opportunities and waste.
Examples of preventive costs are planning, scheduled maintenance and
quality assurance.
Organizations that have no cost of quality measurement system often see the
following symptoms:
Changes in one area tend to have large, negative effects in one or more other areas
Management gets personally involved in quality problems only during a major crisis
All employees are not actively and personally involved in driving the organizations
mission forward
Many individuals and departments disagree on what the top priorities are for the
organization
Data collection is watered down or superficially implemented, and the process quickly
becomes a make work exercise with little or no real benefit
Efforts are directed at where it is easy to collect data or implement changes instead of
focusing on cost of quality priorities such as largest cost category, most variation or
largest business risk Sources
Input data are often incomplete and definitions are often unclear or not fully understood,
resulting in varying interpretation and implementation over time, thus adding significant
noise to the data, clouding interpretation attempts and hiding significant trends of
extended periods of time.
Management does not effectively use the data in an effective manner. Decisions are
often made without realizing or considering cost of quality.
Cost of quality dollars expended shift around among the four categories on a revolving
basis, with little or no reduction in the total cost of quality. For example, money is spent
to increase assessment, which indicates a problem exists with internal or external failure
costs. Assessment costs are stopped but preventive costs increase to reduce failure costs.
The preventive actions are not comprehensive or consistently applied so internal and
external failure costs reappear. The rising failure costs prompt another round of
assessment costs, and the cycle is repeated.
Collection of cost of quality data becomes more costly, burdensome and bureaucratic
over time, making it slower to respond to significant changes.
Statistical analysis of cost of quality data is not performed. Early recognition of trends
are missed and random variations are mistaken for significant signals.
The cost of quality system is isolated from other key performance indicator systems,
missing the opportunity for more in-depth understanding of cause and effect relationships
for the cost of quality results.
2. After confirming that the data is accurate and comprehensive or representative, and
consistent with previous definitions and implementations, data is analyzed for trends and
opportunities.
4. In some cases utilizing tools such as modeling can predict the optimum cost of quality
and the process design or improvement necessary for achieving the optimum can be
defined sources.
5. A plan is then defined to modify the current process, phasing as appropriate, to move
towards the optimum cost of quality.
6. Projects are analyzed for their impact on cost of quality, and projects or processes that
how a high return on quality (Return on Quality = (Dollar Cost of Quality Savings/Dollar
Cost of Implementation) x 100)
Section-A
The International Standard for Quality management (ISO 9001:2008) adopts a number of
management principles that can be used by top management to guide their organizations
towards improved performance.
Customer focus
Leadership
Involvement of people
Process approach
Continual improvement
There are many methods for quality improvement. These cover product improvement,
process improvement and people based improvement. In the following list are methods of
quality management and techniques that incorporate and drive quality improvement:
Kaizen Japanese for change for the better; the common English term
is continuous improvement.
PDCA plan, do, check, act cycle for quality control purposes. (Six
Sigma's DMAIC method (define, measure, analyze, improve, control) may be
viewed as a particular implementation of this.)
The Toyota Production System reworked in the west into lean manufacturing.
Follow up
Closure
The various machining cells are interconnected, via loading and unloading
stations, by an automated transport system.
less waste
fewer workstations
reduced downtime
reduced labor
increased capacity
Section-B
Just in time (JIT) is a production strategy that strives to improve a business' return on
investment by reducing in-process inventory and associated carrying costs.
Just in time is a type of operations management approach which originated in Japan in
the 1950s. It was adopted by Toyota and other Japanese manufacturing firms, with
excellent results: Toyota and other companies that adopted the approach ended up raising
productivity (through the elimination of waste) significantly.
JIT focuses on continuous improvement and can improve a manufacturing
organization's return on investment, quality, and efficiency. To achieve continuous
improvement key areas of focus could be flow, employee involvement and quality.
Features of JIT:
Reduced setup time. Cutting setup time allows the company to reduce or
eliminate inventory for "changeover" time. The tool used here is SMED (single-
minute exchange of dies).
The flow of goods from warehouse to shelves improves. Small or individual piece
lot sizes reduce lot delay inventories, which simplifies inventory flow and its
management.
Employees with multiple skills are used more efficiently. Having employees
trained to work on different parts of the process allows companies to move
workers where they are needed.
OBJECTIVES OF FMS
The general objectives of an FMS are to approach the efficiencies and economies of scale
normally associated with mass production, and to maintain the flexibility required for
small- and medium-lot-size production of a variety of parts.
Two kinds of manufacturing systems fall within the FMS spectrum. These are assembly
systems, which assemble components into final products and forming systems, which
actually form components or final products. A generic FMS is said to consist of the
following components:
A set of work stations containing machine tools that do not require significant set-
up time or change-over between successive jobs. Typically, these machines
perform milling, boring, drilling, tapping, reaming, turning, and grooving
operations.
Storage, locally at the work stations, and/or centrally at the system level.
The jobs to be processed by the system. In operating an FMS, the worker enters
the job to be run at the supervisory computer, which then downloads the part
programs to the cell control or NC controller.
We can generalize Business Process Reengineering (BPR) efforts as an eight step process
as follow -
Step 1: Formulate / Modify business visions, policies, objectives
Step 3: Analyze the existing business process cycles & workflows and determine how
they may be modified or refined
Step 7: Integrate the EIMS with the BPAS to build up the completed reengineered
business system
Step 8: Repeat steps 1-7 for continuous BPR due to changing customer demands,
technology changes and business strategies, which leads to business stability
The first step in reengineering is to prepare and communicate the case for
action and the vision statement. The case for action is a description of the
organisations business problem and current situation; it presents justification for
the need for change. The vision statement describes how the organisation is
going to operate and outlines the kind of results it must achieve.
During this phase, the most important business processes are identified and are
described from a global perspective using a set of process maps. Process maps
give a picture of the work flows through the company. They show high-level
processes, which can be decomposed into sub-processes on separate sub-process
maps.
This is the most creative phase of the methodology, because new rules and new
ways of work should be invented. Imagination and inductive thinking should
characterize this phase
The last phase covers the implementation phase of the BPR project.
Hammer/Champy does not talk about implementation as much about project
planning. They believe that the success of the implementation depends on whether
the five preliminary phases have been properly performed.